Modern Monetary Theory (MMT) is an economic framework that challenges conventional views [reality] on government spending and deficits. In a nutshell, MMT argues that a government that issues its own currency can't go bankrupt in that currency because it can print more money when needed. MMT suggests that the key constraint on government spending is the potential for inflation, not the level of debt deflation of its currency.
In the context of huge deficits, MMT proponents argue that deficits themselves aren't inherently bad. They can be used to stimulate economic activity, especially in times of recession or crisis. MMT suggests that as long as there are available resources (like unemployed labor or idle factories), the government can spend money without causing inflation. An idea that has been proven wrong for generations and has caused hyperinflation in every real-world situation where it has been tried.
MMT Policies At Work
MMT ignores economic realities and inevitably creates extreme inflationary pressures. Excessive money creation has always led to rising prices. One only needs to look at pre-WWII Germany and the Weimar Republic, as it pumped money into its economy, essential purchases like a loaf of bread ended up costing millions. Despite this, MMT proponents counter this argument by advocating taxation to control inflation, which really just adds to the cost pressures of the average citizen who already can not afford to sustain themselves. In their view, taxes create demand for the currency and prevent excessive inflation, even though this has never been an observable reality.
MMT Policies in Germany and Venezuela
As with post-WWI Germany under the Treaty of Versailles, the country had to pay massive sums to the Allies. This put extreme pressure on its economy and the German government decided to meet these obligations, by employing MMT principles and resorted to printing large amounts of money. This decision not only led to more inflation, and resulted in hyperinflation, but it also set Germany on the course of Nazism and ultimately led to the destruction of their nation. A more contemporary example of failed MMT policies would be Venezuela. Starting in 2003 they began developing strong alliances with major industries and placed extreme controls on their economy. They completely socialized their health system and their financial system. All private investments held by individuals and businesses were confiscated. As a result of this high level of socialization, inflation spun out of control. They responded by printing money. The nation is now virtually bankrupt and the standard of living competes only with the third world.
Conclusion
MMT advocates often argue that the German hyperinflation example is not a direct parallel to their theory. They emphasize that the conditions in Germany were unique, involving war reparations, political instability, and a loss of productive capacity. When you research Vinazuala's decline you will find that MMT proponents will blame falling oil prices and a failing world economy for their decline. They will further stress that the MMT framework is contingent on having idle resources, and proper management hyperinflation. However, they show their limited understanding of economic realities because they do not understand that idle resources will sit idle when there is no demand. MMT ultimately is a Marxist philosophy that rejects Capitalism as a viable economic system, thus they reject the concept of supply and demand.
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